Seller's Market in 2009, What's Going On?
April 21st, 2009
Categories:Real Estate News
How do you know the market has shifted? Where is the bottom of the real estate market? If we really are at the bottom of the market, would anyone be crazy enough to say it and risk the potential backlash? Probably not.
But here I go anyways…
What are the signs of a shifting/changing market?
The average Joe Schmo out there would tell you to look for increasing sales, decreasing inventory and increasing sales prices. Unfortunately this is such a simplistic way of looking at shifting trends, anyone taking this approach would only be able to look backwards and tell you “oops its already happened”… woulda, coulda, shoulda bought a home.
Spotting the Shifting Market, its in the details…
Here’s a quick economics lesson. When home sales increase, prices increase, inflation increases and the economy gets out of control. Need an example? Just think back to the last real estate boom. America enjoys learning from history, so we make new rules and create systems to keep us from running the economy into the ground over and over again.
Which means the next time home sales increase, there will be systems in place to keep the inflation under control. The most common example will be an increase in interest rates for mortgage loans. By increasing the interest rates, homes become more expensive and harder to financially obtain, which helps suppress home sales and home prices. Focus on the “harder to financially obtain” part of that message.
Currently mortgage rates are at historical lows, but obtaining a loan is significantly more challenging than it has been in decades. And it continues to become more challenging as the minimum FICO scores for FHA loans continue to increase and the number of investors buying conventional loans continues to decrease, all of which make it harder for home buyers to financially obtain a home.
Shifts Are Not Always About the Ability to Obtain a Loan
Recently the new appraisal regulations have appraisers on edge and taking a new approach to valuing homes. Appraisers are now required to factor in the list price of homes active on the market into their appraisals. They are also factoring in the “declining market” issue, giving them one more reason to drop the appraisal value of the home. As a side note, homes have to appraise for the contracted amount in order for the banks to loan money to the home buyer. So if the home doesn’t appraise, the deal falls apart unless the owner is willing to reduce the price. Are we starting to see the one step forward, two steps backwards problem here?
What About Home Sales?
As the media has pointed out, home sales are increasing, but so are the bidding wars. Yes, bidding wars in 2009 over bank owned homes that are in terrible condition and involve working with a seller that has all the control in a transaction and requires you to sign an addendum longer than the purchase contract that simply rewrites the purchase contract to favor their incompetent company and title company, while threatening to punish the buyer for any wrong thoughts, er i mean wrong actions.
The market is shifting, there is no doubt about it and the systems we have put in place to control inflation are clearly at work. Personally I’d like to let inflation run its course until home values are up a little bit, however I do apprecaite the systems that are keeping this market from getting out of control once again. But are these systems too much, too soon?
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- 4.5% Home Loans Help, Hurt or Just Silly?
- Market Value vs Market Price
- Queen Creek Home Values, Too Low?
- Gilbert Homes Undervalued?